NEWARK, N.J. – A civil suit filed against CU National Mortgage last week hours before the company filed for bankruptcy charges the owner and CEO of CU National masqueraded as an executive vice president of Picatinny FCU and signed "allonges" assigning millions of dollars of the Dover, N.J., credit union’s mortgages to Fannie Mae as part of a wide-ranging fraud scheme that may involve hundreds of millions of dollars of credit union loans.
During a hearing last week in U.S. bankruptcy court, where CU National and its parent U.S. Mortgage Corp., landed last week, lawyers for Picatinny said the mortgage servicer may have sold as much as $14 million of its loans to Fannie Mae without authorization and without sending the receipts to the credit union. "( US Mortgage CEO Michael) McGrath endorsed Picatinny’s name to a note which assigned the mortgages to Fannie Mae,"said James Forte, Picatinny’s lawyer in the case. "These loans were sold without our authorization."
Picatinny and dozens of other credit unions are currently working with officials of US Mortgages/CU National for the return of tens of millions of mortgages sold to Fannie Mae without their authorization.
Lawyers for McGrath did not return phone calls last week. The switchboard at US Mortgage was shut down last week and no one was answering calls. But documents included in both the bankruptcy filing had the civil credit union suit indicate that company officials have conceded the fraud.
McGrath and his family members are the largest owners of US National, with a stake of over 50%, with Wall Street broker-dealer Labranche Inc., the second largest owner with a 39.9% stake.
Company officials said in court filings they have been working with the FBI, NCUA and state regulators on what is emerging as a massive fraud that may involve as many as 120 credit unions. The list of the 20 biggest unsecured creditors filed with the bankruptcy court show Fannie Mae with more than $99 million owed, followed by 19 credit unions owed more than $115 million. Most of the credit unions are located in the mid-Atlantic states, near Pine Brook, N.J.-based CU National, including: Suffolk FCU and Sperry Associates FCU, in New York; Proponent FCU, Picatinny FCU and Novartis FCU, in New Jersey; Educational Systems FCU and Energy FCU, in Maryland; and Treasury Department FCU, in Washington, D.C.
Picatinny’s Forte said the immediate goal for the $225 million credit union, which has almost $50 million of mortgage being serviced by CU National, is to unwind the sale of their loans to
Fannie Mae and obtain the return of all of the paperwork and servicing rights. The credit union and the others working with CU National, has moved its servicing to CUMAnet, a mortgage CUSO located in Basking Ridge, N.J. "First, we want to make sure that our member’s loans are being serviced," Forte told The Credit Union Journal on Friday.
"Fannie Mae has been flooded with these requests," said Forte. "In terms of the fraud, it all seems to be credit union-related."
Exacerbating the situation is that CU National appears to not have properly services the Picatinny mortgages and credited members with the proper payments, said Forte. Picatinny is worried that CU National is not paying property taxes, insurance and other escrow obligations, even though the members have paid the proper funds into their escrow accounts.
